How To Invest In Art

I’ve got to confess before we begin. The only “art” I know is the guy who cuts my hair. But that doesn’t mean that I don’t have art hanging on my walls. I own art because I know what I like and the pieces give my apartment life.

But art can be much more than decoration. It can be an investment. In fact, some investors rank art second only to property as the best place to put your money. But as always, the question remains: How can you find a piece that will appreciate in value?

Here are some tips to keep in mind if you’re interested in making art part of your portfolio.

what to ask yourself

Am I interested in art?

This may seem like a basic question, but too often novices enter the art market without a passion for the medium. The result is that they make poor choices and end up with pieces they don’t even like.

Am I knowledgeable about art?

If you took an art history course in college, then good for you. But don’t think that your knowledge begins and ends there. The art world is like any other market, it lives on what’s happening today and it hunts for what will happen tomorrow.

One way to find out what kind of art lover you are is by visiting galleries and art museums. Museums will give you an indication of the field; galleries will tell you what’s going on in the world of art right now.

Think of galleries and shows as the marketplace; you must attend them to know what’s going on. As a bonus, gallery staff can usually answer a lot of your questions — but keep in mind, they are salespeople.

Am I a first-time buyer?

When it comes to art, or any money investment for that matter, it’s easy to think that you know what you’re doing. After all, you see the success of some and you think, why not me? Art, like property, has a lot to do with business, but even more to do with the buyer’s taste.

Experience plays an important role in this investment process. While a first time buyer isn’t likely to understand how and why the market swings on taste, he isn’t necessarily at a disadvantage.

Perhaps the best way to insure your investment is by purchasing something you like. Art prices rise and fall, so if you buy something that you like, you’ll be able to live with it through the lean years.

Here’s how you can stay informed

how to inform yourself

Read magazines & newspapers
The art world has its own publications. Start by reading your newspaper’s art section for general background. When you visit a gallery you like, pick up any magazines they offer, or ask if the work has been reviewed in any periodicals. A periodical, like ARTnews , will help you better understand the trends in the art market. The Arts section of the Sunday edition of The New York Times is another good place for a novice to start, as are The Village Voice and LA Weekly , which both have regular art reviews.

Find a trusted advisor
There are a number of people who make their living helping you buy the right piece. If you decide to use an advisor (I say if , because advisors are typically available only to those who wish to invest several hundred thousand dollars), make sure you go with someone who can provide strong references. After all,

hiring an art advisor is like hiring any other professional — his reputation for success and honesty is everything.

Do your homework on them. Such people aren’t found in the phonebook. Often, art advisors find their clients through personal contacts. By attending shows and talking to people, you’ll find the art advisors in your area. In other words, this is a word of mouth occupation.

what type of art?

For anyone who has ever seen modern art, you know that even the word “art” can pose a tricky definition. Most collectors focus on an area that they know and love. For example, you might really like abstract sculpture or oil paintings.

Sadly, from an investment perspective, there is no way to gauge the market success of one medium or style. Likewise, especially old art has neither an advantage nor disadvantage over new art.

In other words, it all comes down to taste. The best advice is to focus on the type of artthat you like.

is art a good investment?

Yes and no. The truth is that you can make money in art, but you can’t always count on it. That’s true of stocks too, but if you’re a numbers guy who wants tons of stats, art probably isn’t for you.

Just remember; the hottest thing can be considered valuable one day and junk the next. But whereas the stock market will point you to a series of logical business failures to explain that result, all the art world can say is that tastes change.

How do they decide how much art will cost?

Pricing art
Most collectors will tell you that pricing art has more to do with the artist than the piece, at least when it comes to setting the initial price point. But then the question becomes whether the piece is typical of the artist’s work. Both questions are a matter of taste.

Fortunately, when it comes to finding a hot artist, you can look to the market trend. If you go to art shows and auctions, and you begin to hear one name more and more often, it’s likely that that artist is trending up. Finding the right piece, knowing when to buy and when to sell, are all things that the seasoned investor learns over time.

So when should you sell?

While there is no set time to sell, art is not a field in which investors make money with quick trades. Art can appreciate over years or even decades. In short, there are no good rules on when to sell.

It’s difficult to project the average historical return on art investments because, unlike stocks, the market doesn’t always report results. That said, some investors believe that over the last 50 years, art has out performed the S&P 500. Many investors project returns on

investmentin excess of 15%.

what to look for in an artist

Famous, or up and comer?
It’s art, but the obvious investment rule, “buy low and sell high,” still applies. The truth is that you can make a buck with a famous artist or an unknown just as easily as you can lose your shirt. However, it’s much more difficult to spot a rising star, especially if you’re just starting out.

So in the beginning you should stick to known quantities as much as possible. But remember; even a famous artist can turn into a disaster. A popular artist, Mark Kostabi, was well on his way to prominence — Sylvester Stallone was among his many patrons — when an errant comment (about AIDS benefitting the art world because it killed many gay artists) led to a market collapse for his pieces. His work went from being valued in the low five figures to virtually worthless overnight.

What the art world thinks of the artist
There are many steps on the road to success for an artist. Along the way, an up and coming artist will probably sign with an agent, have shows in more and more exclusive galleries, get good reviews from critics, and (hopefully) sell a few pieces.

These are all earmarks of a solid investment, but they aren’t a guarantee.

What all these factors have in common is that they represent opinions of people in the art world. That’s important because these opinions drive the market price. But that doesn’t mean that you shouldn’t buy a piece from an artist without an agent, or from one who has received bad reviews.

Essentially, what the art world thinks of an artist is a good way to minimize risk. On the other hand, the diminished risk usually means higher prices because other people are in on the artist. By contrast, an unknown artist can have a remarkable return on investment, or no return at all. So, in the end, it’s your decision.

stay tuned

Stay tuned for part two of “How To Invest In Art,” in which I will let you know where to find art, associated costs that come with buying art, whether or not you can diversify your portfolio, and scams to keep an eye out for.